Goldman Sachs economists warn that surging inflation will get worse

( Prices increases in just about every category of goods is putting a hurting on all Americans, and it doesn’t appear that it’s going anywhere anytime soon.

In fact, economists with Goldman Sachs said recently that the problem of inflation could potentially get worse before any improvements are seen.

In a recent note the firm sent to its clients, Goldman Sachs warned that disruptions to the global supply chain caused by the coronavirus pandemic might last longer than was initially expected. That’s because demand continues to surge while many goods are still either stuck at sea or are causing backups at warehouses and ports across the country.

As a result, the firm believes that major metrics of inflation will remain “quite high for much of next year.”

The note continued:

“It is now clear that this process will take longer than initially expected, and the inflation overshoot will likely get worse before it gets better.”

Current inflation in the country has now reached the highest level it’s been at since back in February of 1982. That’s according to the measurement called the Federal Reserve’s preferred gauge.

The Fed has a target of 2% for the personal consumption expenditures price index. Just last month, that index hit an overwhelming 5.7%.

Another measurement of prices, called the Consumer Price Index, shows that inflation increased by 6.8% from November of 2020 to November of 2021.

Interest rates have been hovering steadily near zero since March of 2020 — the beginning of the pandemic in America — but these new reports on inflation are likely to force the Federal Reserve to take swift action.

The Fed announced just this month that it would start pulling back monetary support of the country’s economy in response to inflation, and it could also convince them to tighten policy measures even further.

Things have changed quite quickly, too. In September, Federal Reserve officials believed that it wouldn’t be necessary to increase interest rates for at least another year. Now, it’s very possible that multiple hikes in the interest rate could occur in 2022.

New projections from one Fed official is that interest rates will hit 0.9% by the end of next year, go to 1.6% by the end of 2023, and then hit 2.1% by the end of 2024.

Jerome Powell, the chairman of the Federal Reserve, said recently that he thinks consumer prices will drop in 2022 once the supply chain’s bottlenecks clear up. At the same time, he warned of the great risks that continued high prices poses for the overall economy.

That’s why he said the Fed will speed up the monetary withdrawal of support for the economy. October indicators that showed that nearly 500,000 new jobs, rising wages and a monthly increase of 0.9% in consumer prices are all reasons why the Fed needs to act.

Powell explained:

“There’s a real risk now. I believe that inflation may be more persistent … the risk of higher inflation becoming entrenched has increased.”